The receivers of Rockforte Finance, a Gisborne-based second hand car financier that was placed in receivership whilst its deposits were guaranteed by the taxpayer and is now being investigated by the Serious Fraud Office (SFO), have more than halved their estimated recovery from the receivership to less than 5 cents in the dollar.
Receivers Dennis Parsons and Katherine Kenealy of Indepth Forensic Ltd say in their third report that given the likelihood of recovery against Rockforte's directors - Nigel O'Leary, John Gardner and Colin Simpson - is considered low, the expect the return to the taxpayer, via Treasury, to be less than 5c in the dollar. Previously the receivers said the return would be "no greater" than 10 cents in the dollar.
(See more here on Rockforte's relationship with failed clothing retailer Jean Jones in Intricate web or fraud alleged in the affairs of Crown guaranteed failed finance company).
The less than 5c forecast is subject to the ability of Indepth Forensic to recover the remaining loan portfolio on a cost effective basis, Parsons and Kenealy say, and it's also dependent on successful resolution of legal action that's underway.
They say SFO staff have reviewed all records held by the receivers and have made wider enquiries, but they aren't aware of any charges being laid at this stage. Simon McArley, the SFO's general manager of financial markets and corporate fraud, told interest.co.nz in July that the SFO aimed to wrap up all its probes into failed finance companies by Christmas.
Parsons and Kenealy were appointed receivers on May 10 last year. Rockforte was also placed in liquidation on February 15 this year on petition of Commissioner of the Inland Revenue Department Robert Russell with the Official Assignee in Hamilton administering the liquidation. The receivership came about after Rockforte's directors failed to secure an institutional investor in late 2009 or early 2010 and asked trustee Covenant Trustee Company to appoint a receiver.
The receivers say their investigations show Rockforte was having "material" problems with non-performing loans from mid-2009 on.
Taxpayers' coughed up NZ$3.5 million
The receivers say Rockforte's records show 77 investors with NZ$3.25 million invested in secured debentures. However, they also identified additional investors with NZ$610,000 of funds that appear to have been transferred to third parties without the investors' knowledge or consent. Treasury has reimbursed 66 Rockforte investors to the tune of NZ$3.5 million.
Meanwhile, the receivers say they have reviewed Rockforte's loan book in detail. It has 318 loans, primarily small sums secured over second hand Japanese imported cars. At the date of receivership there was NZ$4.8 million outstanding with NZ$1.1 million overdue.
"Security for loans can generally be described as poor and in some cases non existent," Parsons and Kenealy say, adding that 35 loan files can't be located.
"Our initial review of the loan book indicated this overdue figure was materially inaccurate as the company regularly refinanced non-performing loans into new loans, creating a new and current liability and by doing so had the effect of removing the non-performing loan from its records. In some instances this refinancing took place immediately prior to receivership."
Non-performing loans and defaulting debtors have been referred to collection agencies for focused recovery action, Parsons and Kenealy say. So far recoveries from these loans have, however, been minimal with the recovery hampered by the lack of documentation, inability of the debtor to repay the debt and poor level of security. Although some of these recovery actions are being pursued through the courts, in many cases the cost of such action outweighs any potential returns.
'NZ$2 million of undisclosed related party lending'
The receivers say their investigations show a significant portion of the loan book had been underperforming for more than a year and there was "material undisclosed" related party lending of NZ$2 million.
Formal proceedings have been filed in the Gisborne High Court against O'Leary, Gardner and Simpson in relation to alleged conversion of funds, and their management and stewardship of the company amounting to NZ$1.9 million.
"Since the filing of those proceedings, O'Leary has been adjudicated bankrupt. A claim has been lodged with the Official Assignee in O'Leary's bankrupt estate for the sum detailed in the Statement of Claim. To date no reports have been received from the Official Assignee in relation to the assets available in that bankrupt estate," the receivers say.
Unsecured creditors, including the Radio Network whose stations include Newstalk ZB, owed NZ$234,070.67 won't get any of their money back.